WEEKLY MARKET SNAPSHOT 18/9-22/9 |Will the FOMC announce a final USA interest rate rise for 2017 on Wednesday, or will they keep their powder dry until the final quarter?
Undoubtedly, the key economic calendar event for the coming week, is the FOMC decision on interest rates, which will be revealed on Wednesday. Currently at 1.25%, the FOMC/Fed rate has increased twice in 2017 and the FOMC did suggest earlier in the year, with the usual caveats and sophist language allowing adequate room to grow back, that there’d be at least three rate rises in 2017.
The dollar has fallen sharply in 2017, despite the two interest rate rises since Trump’s election, as USA equity indices have rallied, in perfect negative correlation with the dollar. Classic economic orthodoxy determines that; a low domestic currency value increases exports and manufacturing, whilst making imports more expensive and Trump did obligate to improve manufacturing and exports by “putting America first”. However, the danger is that a Goldilocks period is initially enjoyed. Thereafter; if input/import prices spike for manufacturers and then exporters, then the economic theory falls apart, as manufacturers no longer feel the benefit of their cheaper domestic currency.
The rapid, record breaking, rise in equity markets in the USA during 2017, has taken place primarily as a consequence of Trump’s promised tax breaks, potentially increasing revenue and profits for USA based corporations, the rise has not been caused by improved earnings alone. The USA economy is far more fragile than many hard data indicators would lead us to believe, therefore the FOMC may agree with the consensus forecast (delivered by the economists polled), and decide leave interest rates unchanged, for now.
The week begins on Sunday evening with the UK’s latest house price data from the private firm Rightmove, who publish asking prices (not sold prices), which fell by 0.9% in August, a small rise is suggested, to keep annualised growth above 3%.
Monday witnesses dairy auction results from New Zealand, a critical metric to judge the country’s economic performance by, given its over-reliance on dairy and milk powder as exports to Asia. China’s property prices are also revealed early Monday morning, which will be carefully monitored for signs of domestic, economic weakness. As European markets open, Swiss sight deposits data is published, a reading that shouldn’t be dismissed as (despite being low impact) it can often effect the value of CHF (Swissie). Eurozone CPI is forecast to come in close to the current 1.3% YoY increase registered in July. As attention turns to the USA, the NAHB housing market index will be revealed. Later, the USA hosts the governor of the Bank of England Mark Carney, as he gives a speech at the IMF in Washington. Late evening New Zealand provides its latest consumer confidence reading, delivered by the banking group Westpac.
Tuesday’s significant economic calendar events, begin with Australia’s central bank (RBA) publishing the minutes of the meeting earlier this month, at which it decided to keep the key interest rate unchanged at 1.50%. Australian house price data will also be revealed. As Europe opens, key financial detail concerning the Eurozone’s current account for July is delivered, the forecast is for a similar figure to June. At a surplus of circa +€21.2b, compare and contrast that to the -$116b deficit the USA recorded in Q1 2017, forecast to reduce only marginally, when published at 12:30pm GMT. ZEW economic sentiment surveys, for both Germany and the Eurozone are published, the expectation is for a similar reading to August. As USA markets open, housing starts are forecast to show 2.2% growth YoY, a marked improvement on the -4.8% fall registered in July. The U.S. import price index is forecast to increase to 0.4% for August, from 0.1% in July, export price index is predicted to fall to 0.2% for the month. Late evening New Zealand’s current account balance is revealed, as is Japan’s merchandise trade balance.
Wednesday begins with governor Lowe of Australia’s RBA giving a speech in Perth, followed by Australia’s Westpac leading index and skilled vacancies data being published. As Europe’s markets prepare to open, Germany’s latest producer prices (MoM and YoY) are published. Focus then shifts to the UK’s economy, with the latest retail data published, sales are forecast to fall to 0.1% in August, reducing to 1.4% YoY growth, for an economy so reliant on the service sector this fall (if it proves to be correct), will represent a blow to the UK’s overall performance. As attention shifts to the USA, mortgage applications and home sales data is published, together with the customary Wednesday energy inventories. The key economic event of the week; the FOMC (Fed) interest rate decision, is revealed at 18:00 GMT. Currently at 1.25%, the economists polled by Reuters and Bloomberg, appear split on a prediction for a rise, the overall consensus is for no change. Late evening New Zealand’s latest Q2 YoY figure is published, the current figure of 2.5% growth, is expected to be maintained.
Thursday’s key economic data begins with Japan’s monetary policy statement, which will be closely analysed due to Japan’s recent improved GDP performance, suggesting that the infamous
Abenomics program may be working. Japan’s all industry activity index for July will also be revealed, as will the growth in supermarket sales for August. Later in the day, the BOJ governor Kuroda will hold a press conference, after the impact of the monetary policy statement has been absorbed into market behaviour. As Europe’s markets prepare to open the Swiss: trade balance, economic forecasts for the country, money supply figures, exports and imports data are released. Although listed as low to medium impact events, the cumulative effect of such rapid data releases, could move the value of the Swiss franc, should any data surprise the market. Late afternoon a reading for the Eurozone’s consumer confidence will be released. The ECB’s latest economic bulletin is published. We then quickly move onto a raft of U.K. data, concerning the state of the country’s public finances. From the USA the: weekly jobless claims are revealed, as are continuing claims, the latest leading indicators and the Philly Fed business outlook. The change in householders’ net worth is also published, which is generally and directly highly correlated with levels of debt and or the money in circulation.
Friday is dominated by a highly active European economic release schedule; France’s GDP for Q2 is forecast to remain at circa 1.8%, France’s three key PMIs: services, manufacturing and composite, are published. The identical series of PMIs are published for Germany and the Eurozone. As attention moves to North America, Canada’s CPI is published, currently 1.2% YoY for July, with the MoM figure coming in at zero, there is little expectation for a significant increase. Retail sales information for Canada is also released. The weeks significant releases ends with Markit PMIs for the USA; services, manufacturing and composite, it must be noted that despite their valued reputation as a leading indicator, Markit PMI readings in the USA tend to take rank lower than ISM PMIs, in terms of overall market impact in the USA. The Baker Hughes rig count is taking on increased recent importance, as a consequence of the hurricane season in the USA and wraps up the week’s economic releases.
« Dollar rises, euro and sterling fall, USA equities trade mainly sideways, gold slips, WTI rises Sterling surges on the promise of a potential rate rise, after the UK’s Bank of England keeps base rate at 0.25% »
